PPG Industries Is So Boring You Should Own It

Want a solid steady stock that keeps rising and pays a decent dividend? Try PPG Industries, $PPG. Yes they make protective and decorative coatings, and pays a slightly over 2% dividend. What makes this stock interesting to me is that it a very good technical set up as well. Let me explain. The daily chart below shows a steady rise out of consolidation from November 2010 through February 2011 until it met resistance at 107.5 and consolidated there for the last 3 months. That move from a base at 82.50 to the new base around 102.5 establishes a Measured Move higher to 127.50 on the break over that 107.50 consolidation. Now that it has retested the breakout level and held this stock is ready for a trade entry. Using a stop under the 107.50 with a target of 127.50 level would yield a 15% gain against a 3% downside. A 5:1 reward to risk ratio. And the 3-box reversal Point and Figure chart lines up with this upside bias as well, carrying a 125 Price Objective. Slow, steady, boring and a dividend. Bring it on!

You like it but at $111 it is too pricy? No problem. Since the previous move high took about 4 months to complete you can look to the end of November for the next as an approximation. Using the November 110 Calls, offered at $6.50 late Monday, cuts the capital outlay by 94%. Cut that down to $4.60 by also selling the November 95 Puts for $1.90, a strike below the last consolidation range. It has a lot of previous trading history to work through to move below 95. You can reduce it further by spreading them against the November 130 Calls when it has risen in price enough to get back all of your initial outlay. Of course if you play the options the dividend is not a factor, but the potential $15 payoff at $125 in November on a $4.60 outlay is 226% return.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)

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